Deadbeat Dictator: Assad Isn’t Paying His Debts to Putin
As the Syrian president piles up IOUs with the Kremlin and the mullahs of Iran, he’s hoping he can cover the debts with Syrian oil. But Moscow wants its money now.
According to a classified Western intelligence report seen by The Daily Beast, the Syrian regime currently owes the Russian government $60 million for a consignment of crude oil imported last October, and, while Damascus insists it’s got the money to settle its debt—apparently, it’s all “cash” and tied up domestically—it’s nevertheless stalling for time while also asking for another shipment of Russian crude, and at a reduced price no less.
Frustrated with bailing out an economically straitened client-state, the Kremlin told the Syrians to pay up first, according to the report.
On Dec. 11, Duraid Durgham, the governor of the Syrian Central Bank, was in Moscow on an unpublicized visit to discuss his regime’s in-arrears status and other Syrian-Russian economic matters.
In October 2017, Moscow and Tehran transferred 1 million barrels of crude to Syria, an amount which, analysts say, conforms to the national consumption rate since civil war broke out there.
“From the [Russian] side, Promsyr’yeimport… coordinated the deal,” the report reads. “Both Syria and [Russia] are planning to continue with this kind of cooperation also in 2018.”
Promsyr’yeimport is a Russian state entity which, according to its website, engages in “commercial operations in the sphere of foreign trade and other forms of foreign economic activity, and on the basis of this, assistance to the development of coal iron, steel and other industries.”
The Russians, who have made something of a photo-op sport of humiliating Assad as a hapless and inferior dependent, say no more crude until he gets square.
During his secretive visit to Moscow, Durgham, who is sanctioned by both the United States and the European Union, met with Russian Energy Minister Alexander Novak as well as representatives of various Russian banks, including Sberbank, the country’s largest, as well as VEB, the Russian Financial Corporation Bank, and CMR Bank. He also met with the Russian state arms dealer Rosoboronexport.
Sberbank, VEB, and Rosoboronexport, incidentally, have also been sanctioned by the U.S. for their role in facilitating Russia’s invasion and occupation of Ukraine.
Since the Syria conflict began in 2011, the Syrian Central Bank has quietly increased its business ties to any number of questionable Russian financial institutions.
In 2012, WikiLeaks reportedly suppressed an email contained within a tranche of hacked Assad regime correspondence showing that Assad’s central bank had transferred €2 billion—$2.4 billion—to VTB, a Russian state-owned bank with retail and investment arms all over the world, including the United States, which added VTB to its list of sanctioned entities in 2014.
Moreover, Reuters reported in 2013 that in an effort to further evade international sanctions, Syria’s central and commercial banks had begun opening accounts with mid-level Russian counterparts such as the Moscow-based Tempbank, “proposing the opening of a barter account that would allow Damascus to trade goods or oil for foodstuffs that would be shipped from Ukraine.”
A major problem still bedeviling the Assad regime, whose economy has begun to improve slightly in the last year with the tide of the war broadly now going its way, is that the oil fields recaptured from the Islamic State are not yet operational. As such, the country has had to rely heavily on imports of oil and petroleum products from foreign sellers, mainly Iran and Russia.
In July 2013, the Iranians extended a $3.6 billion line of credit to the Syrians, which money was used to import, on average, 60,000 barrels of crude oil a day, amounting to roughly 1 million barrels per month. That arrangement lasted for a few years, then stopped in January last year. Then it supposedly was restarted in May.
In total, Assad is believed to owe the mullahs some $6 billion, which has become a source of major discontent on the streets of Iran, where protesters challenged the Islamic Republic, and called for regime change, not least because of exorbitant expenditures abroad rather than at home.
According to Syria economy expert David Butter, the regime may feel emboldened to ask for more lines of credit from the Russians because “Durgham has been on a bit of a roll recently.” Syrian expatriate cash has been rolling back into the country, Butter says, allowing the central bank governor to revalue the Syrian pound to 434 to the U.S. dollar from 515 in October, the same month as that first shipment of Russian crude was transferred.
“Durgham has also loosened the currency transfer rules, which is succeeding for now in channeling money through the banking and official exchange system at the expense of the black market,” says Butter. “I have him down as a good bet for the ‘central bank governor of the year’ in some sort of award ceremony coming up. The Syrian stock market was up 257 percent last year. Beat that, Donald!”
Butter says that he has seen no open-source evidence to suggest that the Russians have sold the regime any crude oil, but he says that the classified intelligence is plausible, particularly given the timing of the first reported shipment in October, when the Syrian economy rebounded.
Meanwhile, Assad is not in a great position to start moving crude from eastern Syrian to the main refinery in Baniyas.
The oil fields his forces have retaken, mainly in the western Euphrates River Valley, are old and dilapidated—and even more so now, after the grinding war of attrition against ISIS that allowed their recapture. Other fields, including the largest in Hasakah province, remain under Kurdish paramilitary control and in a geographical zone protected by the U.S.-led anti-ISIS coalition.
But just because he can’t cover them today, does not mean Assad is not writing checks.
“Buying oil from Russians with a guarantee that this will be covered by Syrian oil at some future date, whenever that may be,” Butter says, “is certainly plausible.”